ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
HIS HONOUR JUDGE COWELL
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LLOYD
LORD JUSTICE KITCHIN
| SHAMIM CHAUDHARY
|- and -
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Jonathan Gavaghan (instructed by Wiseman Lee LLP) for the Respondent
Hearing date: 25 October 2011
Crown Copyright ©
Lord Justice Lloyd:
"3. Matters affecting the property
3.1 Freedom from incumbrances
3.1.1 The seller is selling the property free from incumbrances, other than those mentioned in condition 3.1.2.
3.1.2 The incumbrances subject to which the property is sold are:
(a) those specified in the contract
(b) those discoverable by inspection of the property before the contract
(c) those the seller does not and could not reasonably know about …"
The Land Registration Act 2002
"The fundamental objective of the [Act] is that, under the system of electronic dealing with land that it seeks to create, the register should be a complete and accurate reflection of the state of the title to the land at any given time, so that it is possible to investigate title to the land on line, with the absolute minimum of additional enquiries and inspections."
"As a general principle, the doctrine of notice, which still has a residual role in relation to the priority of certain interests in unregistered land, has no application whatever in determining the priority of interests in registered land."
"28 Basic rule
(1) Except as provided by sections 29 and 30, the priority of an interest affecting a registered estate or charge is not affected by a disposition of the estate or charge.
(2) It makes no difference for the purposes of this section whether the interest or disposition is registered.
29 Effect of registered dispositions: estates
(1) If a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration.
(2) For the purposes of subsection (1), the priority of an interest is protected—
(a) in any case, if the interest—
(i) is a registered charge or the subject of a notice in the register,
(ii) falls within any of the paragraphs of Schedule 3, or
(iii) appears from the register to be excepted from the effect of registration, and
(b) in the case of a disposition of a leasehold estate, if the burden of the interest is incident to the estate."
"Interests of persons in actual occupation
2. An interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is in actual occupation, except for
(b) an interest of a person of whom inquiry was made before the disposition and who failed to disclose the right when he could reasonably have been expected to do so;
(c) an interest -
(i) which belongs to a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition, and
(ii) of which the person to whom the disposition is made does not have actual knowledge at that time;
Easements and profits à prendre
3(1) A legal easement or profit à prendre, except for an easement, or a profit à prendre which is not registered under [the commons registration legislation], which at the time of the disposition—
(a) is not within the actual knowledge of the person to whom the disposition is made, and
(b) would not have been obvious on a reasonably careful inspection of the land over which the easement or profit is exercisable.
(2) The exception in sub-paragraph (1) does not apply if the person entitled to the easement or profit proves that it has been exercised in the period of one year ending with the day of the disposition."
"116 Proprietary estoppel and mere equities
It is hereby declared for the avoidance of doubt that, in relation to registered land, each of the following—
(a) an equity by estoppel, and
(b) a mere equity,
has effect from the time the equity arises as an interest capable of binding successors in title (subject to the rules about the effect of dispositions on priority)."
Overriding interest – actual occupation
"The novel point which is taken by Mr Gavaghan … is not only should there not be very definite rules about these things, but that if you look at the balcony and the landing leading to the balcony that is something within the occupation of the Claimant appurtenant to the dominant [tenement] at number 37. He puts it this way – who but the Claimant was in occupation of that? On ordinary principles of ownership I suppose the Defendant could go and walk along the balcony so long as he did not interfere with someone exercising a lawful right, and of course he could walk beneath the balcony and the landing leading to it. I am just persuaded – but I realise it is a very appealable point – that that would work as an argument."
"The great point of merit on the part of the Claimant in this case which has occasioned much thought on my part is that when the Defendant bought the property, although he says he never saw the balcony or the stairs because he never went upstairs, the structure was there and in place for all to see, and I have already indicated that I do not think the Defendant even knew that the alleyway was part of his property at the time that he bought on 11th December 2006. What he paid for was the property as it could be seen, and what he could see is the obvious arrangement in the alleyway: that there was a flight of stairs which served the property on both sides of the stairs, and the buildings on both sides of the stairs, i.e. numbers 35 and 37. It seems to me that he did not buy the property on the basis that the stairs or the structure would be removed or altered in any particular way. Mr Gavaghan points to two features, one of which is or ought to be a matter of evidence. In the answers to inquiries given by Mr Vijay or his solicitors he is asked – and this is at page 154 – under the heading 'Adverse rights affecting the property' – Unless apparent from the copy documents supplied are there any current restrictions, agreements, rights or informal arrangements of any kind to which the property is subject, whether public or private, and whether existing or in the course of acquisition (adverse rights)?' and the manuscript answer given is 'None of which the vendor is aware save as disclosed' but I did not hear any evidence from anybody such as the writer of that manuscript note as to what it was that was disclosed, and maybe it could have been disclosed by Mr Vijay that there was an arrangement about the metal structure. Perhaps that is little more than a straw in the wind. The fact is that the structure was perfectly obvious."
"In the factual matrix it was necessary for the protection of the vendors to interpret the agreement between the vendors and the purchasers as conferring rights on the defendant as against the purchasers, and this was done through the medium, as Lord Denning MR put it, 'of imposing a constructive trust on the purchasers for the defendant's benefit'.
By contrast, there are many cases in which land is expressly conveyed subject to possible incumbrances when there is no thought at all of conferring any fresh rights on third parties who may be entitled to the benefit of the incumbrances. The land is expressed to be sold subject to incumbrances to satisfy the vendor's duty to disclose all possible incumbrances known to him, and to protect the vendor against any possible claim by the purchaser if a third party establishes an overriding right to the benefit of the incumbrance against the purchaser. So, for instance, land may be contracted to be sold and may be expressed to be conveyed subject to the restrictive covenants contained in a conveyance some sixty or ninety years old. No one would suggest that by accepting such a form of contract or conveyance a purchaser is assuming a new liability in favour of third parties to observe the covenants if there was for any reason before the contract or conveyance no one who could make out a title as against the purchaser to the benefit of the covenants."
"It seems to me that the fraud on the part of the defendants in the present case lies not just in relying on the legal rights conferred by an Act of Parliament, but in the first defendant reneging on a positive stipulation in favour of the plaintiffs in the bargain under which the first defendant acquired the land. That makes, as it seems to me, all the difference. It has long since been held, for instance in Rochefoucauld v Boustead  1 Ch 196, that the provisions of the Statute of Frauds 1677, now incorporated in certain sections of the Law of Property Act 1925, cannot be used as an instrument of fraud, and that it is fraud for a person to whom land is agreed to be conveyed as trustee for another to deny the trust and relying on the terms of the statute to claim the land for himself. Rochefoucauld v Boustead was one of the authorities on which the judgment in Bannister v Bannister  2 All ER 133 was founded."
"Nor is it, in our opinion, necessary that the bargain on which the absolute conveyance is made should include any express stipulation that the grantee is in so many words to hold as trustee. It is enough that the bargain should have included a stipulation under which some sufficiently identified beneficial interest in the property was to be taken by another."
"The test, for the present purposes, is whether the owner of the property has so conducted himself that it would be inequitable to allow him to deny the claimant an interest in the property."
"This again seems to us to be a case where a constructive trust could justifiably be imposed. The bank were selling as mortgagees under a charge prior in date to the contract. They were therefore not bound by the contract and on any view could give a title which was free from it. There was, therefore, no point in making the conveyance subject to the contract unless the parties intended the purchaser to give effect to the contract."
"It is said that when a person sells land and stipulates that the sale should be "subject to" a contractual licence, the court will impose a constructive trust upon the purchaser to give effect to the licence: see Binions v. Evans  Ch 359, 368, per Lord Denning M.R. We do not feel able to accept that as a general proposition. [They then cited with approval the second of the passages from Lyus which I have set out at paragraph  above.] The court will not impose a constructive trust unless it is satisfied that the conscience of the estate owner is affected. The mere fact that that land is expressed to be conveyed "subject to" a contract does not necessarily imply that the grantee is to be under an obligation, not otherwise existing, to give effect to the provisions of the contract. The fact that the conveyance is expressed to be subject to the contract may often, for the reasons indicated by Dillon J., be at least as consistent with an intention merely to protect the grantor against claims by the grantee as an intention to impose an obligation on the grantee. The words "subject to" will, of course, impose notice. But notice is not enough to impose on somebody an obligation to give effect to a contract into which he did not enter."
"In general, we should emphasise that it is important not to lose sight of the question: "Whose conscience are we considering?" It is the plaintiff's [i.e. the transferee of the land], and the issue is whether the plaintiff has acted in such a way that, as a matter of justice, a trust must be imposed on it. For the reasons which we have indicated, we are not satisfied that it should be."
"That decision [i.e. Lyus] was approved by the Court of Appeal in Ashburn Anstalt v Arnold …. The Court of Appeal put what I hope is the quietus to the heresy that a mere licence creates an interest in land. They also put the quietus to the heresy that parties to a contractual licence necessarily become constructive trustees. They also held … that the mere fact that property is sold subject to a contractual licence is not sufficient to create a constructive trust. They held … that the mere fact that somebody has purchased with notice of a claim does not give rise to a constructive trust. However, the Court of Appeal plainly considered that Lyus v Prowsa was rightly decided.
The result, as it seems to me, is that in the normal case a conveyance of land subject to or with notice of prior incumbrances or prior interests will not operate so as to make enforceable under a constructive trust such prior incumbrances or interests which would otherwise be unenforceable. However, in certain circumstances equity raises a constructive trust because it is unconscionable for the person having received such property not to give effect to the terms on which he received it. As the Court of Appeal said, and with respect I would agree:
"In matters relating to the title to land certainty is of prime importance. We do not think it desirable that constructive trusts of land should be imposed in reliance on inferences from slender materials."
It is important always to bear in mind that it is of the greatest importance that the title to land should be capable of being ascertained in accordance with well-known procedures. To raise constructive trusts which do not fit into the conveyancing machinery currently operating, thereby giving rise to liabilities of which purchasers might otherwise not be aware, is a dangerous course to pursue.
In my judgment, the decision in Ashburn Anstalt does not warrant the creation of a constructive trust unless there are very special circumstances showing that the transferee of the property undertook a new liability to give effect to provisions for the benefit of third parties. It is the conscience of the transferee which has to be affected and it has to be affected in a way which gives rise to an obligation to meet the legitimate expectations of the third party."
"(1) Even in a case where, on a sale of land, the vendor has stipulated that the sale shall be subject to stated possible incumbrances or prior interests, there is no general rule that the court will impose a constructive trust on the purchaser to give effect to them.
(2) The court will not impose a constructive trust in such circumstances unless it is satisfied that the conscience of the estate owner is affected so that it would be inequitable to allow him to deny the claimant an interest in the property.
(3) In deciding whether or not the conscience of the new estate owner is affected in such circumstances, the crucially important question is whether he has undertaken a new obligation, not otherwise existing, to give effect to the relevant encumbrance or prior interest. If, but only if, he has undertaken such a new obligation will a constructive trust be imposed.
(5) Proof that the purchase price by a transferee has been reduced upon the footing that he would give effect to the relevant encumbrance or prior interest may provide some indication that the transferee has undertaken a new obligation to give effect to it: see Ashburn Anstalt v Arnold … However, since in matters relating to the title to land certainty is of prime importance, it is not desirable that constructive trusts of land should be imposed in reliance on inferences from "slender materials"."
"It is a standard feature of land registration the world over that a disponee's mere knowledge of a protectable, but unprotected, interest does not normally affect the title derived from registration. This reluctance to allow the traditional doctrine of notice to intrude upon registers of title is deeply embedded in the origins of the Land Register and has persisted to the present day. As Cross J observed in Strand Securities Ltd v Caswell  Ch 373, at 390A-B, it is 'vital to the working of the land registration system that notice of something which is not on the register should not affect a transferee unless it is an overriding interest'. Title registration is intended to mark 'a complete break' from the equitable rules which formerly governed land law priorities. In consequence there has been a general rejection, no less so in England than elsewhere, of any temptation to qualify the system of title registration by the importation of an equitable doctrine alien to its central purpose."
"There is no general principle which renders it unconscionable for a purchaser of land to rely on a want of registration of a claim against registered land, even though he took with express notice of it. A decision to the contrary would defeat the purpose of the legislature in introducing the system of registration embodied in the 1925 Act."
Lord Justice Kitchin
Lord Justice Ward